July 11, 2006

Have Hedge Funds Recovered?

The jury’s still out on this one – has the fluctuating hedge fund industry steadied itself in July after two months of haphazard performances, or are the high correlation levels between diverse strategies, reduced financial liquidity and high bullish trend still taking their toll on fund performance?

According to the Financial Times, heavy broad selling and de-leveraging by many hedge funds based in the US and the UK has brought down most strategies.  Isaac Souede, chief executive of Permal Asset Management, a $US20 billion-plus fund of hedge funds, blames the rise in the interest rates for the money moving away from the markets. The Australian News reports:

Some industry participants said that the past two months bore the hallmarks of the US stock market crash in 1987 - specifically, the heavy use of index-related products that made seemingly uncorrelated assets move in lock-step as big investors unwound positions.

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